Six value share tips for 2021 – and beyond

by Richard Beddard from interactive investor |

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Our columnist Richard Beddard thinks resilient stocks are the best strategy, and here is his pick of the best.

Looking back on 2020, I wonder if anyone had a view at the beginning of the year that included a global pandemic. The investors that prospered maybe changed their strategies as the pandemic unfolded, or picked winning portfolios despite thinking things would pan out differently. In these cases their initial view was of little consequence.

Alternatively they did not have a view. They built their strategies around something else, picking resilient stocks probably.

I am slow-witted, so resilience is my strategy. This takes longer than a year, more like five or 10 years, to play out. My tips for 2021, therefore, are not time-limited. They are good businesses at attractive prices and because of this they should, in theory, make investors money over the long term, although not all will.

Six of the best

It is still a bit early to be publishing performance statistics since Money Observer magazine, now shut down, first asked me to choose six shares only five years ago in the January 2016 edition. However, a decent performance record may be emerging:

Selection start date

Performance to date (%)

Index tracker to date (%)

Difference to date (%)

2016 (27/11/15)

68.1

29.1

39.0

2017 (27/11/16)

73.9

17.6

56.3

2018 (27/11/2017)

45.6

2.9

42.7

2019 (26/11/2018)

61.3

5.2

56.1

2020 (22/11/2019)

30.1

-3.9

34.0

Source: SharePad, 5 January 2021. Shares were formerly selected in November to meet magazine print deadlines, although from this year they will be selected in early January and published directly on interactive investor.

In four of the five years only one of the six selections has lost money to date. Last year, when the aggregate return of all six selections was 30%, it was the turn of Victrex (LSE:VCT) to lose money, albeit only 2% of its initial value.

The losses can be much greater. System1 (LSE:SYS1), selected in 2018, is down 53% to date. The first year, 2016, was the worst for losers because I selected two: Castings (LSE:CGS) (down 22% to date) and Portmeirion (LSE:PMP) (down 47% to date).

A strike rate of five winners out of six holdings most years is pretty encouraging though, and the winners have outweighed the losers. The best pick of the 30 to date is Renishaw (LSE:RSW) in 2016, which is up 222%.

Fingers crossed then, for 2021. As usual I have selected these shares from those I score and rank with my Decision Engine. All of these shares score more than seven out of 10 for profitability, risk, strategy, fairness and price.

The value-based income selections have the highest dividend yields.

Value-based growth

Dewhurst (LSE:DWHT)

Share price £12.20, earnings yield 8.2%, dividend yield 1.1%

Originally a push button manufacturer, Dewhurst today manufactures and distributes thousands of lift products from control panels to hall lanterns. Much smaller subsidiaries make ATM keypads and street furniture such as bollards. There is not much exciting to say about this family owned and operated business except it cranks out profit and keeps a low profile, which explains why the shares are so cheap. Dewhurst is growing by extending its product range and geographical reach. Read more.

Victrex (LSE:VCT)

Share price £23.66, earnings yield 6.2%, dividend yield 2.0% (fc: 2.2%)

Victrex, which was spun out of ICI decades ago, is the inventor of a polymer known by the acronym PEEK. With more than half of global capacity, it is the biggest and most inventive of a handful of manufacturers worldwide. PEEK is a material so light and tough it replaces metal in a wide range of applications from airframes to medical implants. The company is developing new grades of PEEK and new applications for the material in industry and medicine, a lengthy process intended to secure long-term growth for this highly lucrative business. Read more.

Cohort (LSE:CHRT)

Share price 631p, earnings yield 7.4%, dividend yield 1.6% (fc: 1.8%)

Cohort is literally a cohort of six defence technology businesses working autonomously but collaboratively. The jewel in the crown is MASS, which specialises in electronic warfare, but the company is proving itself to be a judicious acquirer of UK and overseas businesses. Its most recent acquisition in 2020, a sonar system specialist, made Germany its third domestic market after Portugal and the UK. Cohort’s previous acquisition, Chess Technologies in 2018, exports its anti-drone systems around the world. The company is broadening the product portfolio and reducing its dependence on UK military spending, which today brings in less than half of its revenue. Read more.

Value-based income

Goodwin (LSE:GDWN) 

Share price £29.15, earnings yield 6.3%, dividend yield 2.7%

The highest-yielding share in this year’s selections is in a protracted but profitable turnaround that has replaced lost business in the oil and gas industry with orders from defence and nuclear customers. It operates the only UK foundry that can cast superalloys in the giant sizes required by some of the newer customers and its burgeoning order book extends for many years. Goodwin has a second string too, as a leading manufacturer of minerals for casting jewellery, tyres and other applications. Read more.

PZ Cussons (LSE:PZC)

Share price 236.5p, earnings yield 6.5%, dividend yield 2.5% (fc: 2.7%)

PZ Cussons is also going through something of a turnaround, while remaining profitable. The company, which owns valuable consumer brands such as Carex and Imperial Leather soaps and St Tropez fake tan, is working out how to profit in economically troubled Nigeria, where it also sells domestic appliances. It must also figure out how to compete in a world of online shopping and discount retailers. This year, shareholders will be watching for changes resulting from a strategic review led by the company’s new chief executive, Jonathan Myers. Read more.

Bunzl (LSE:BNZL)

Share price £25.22, earnings yield 4.5%, dividend yield 2.0% (fc: 2.3%)

Despite the pandemic, Bunzl has continued to do what it has done for decades, which is buying much smaller distributors, improving their efficiency, strengthening the product range and increasing its geographical reach. All the while it reduces the cost and hassle of procurement for its customers. Bunzl specialises in selling the everyday goods companies and other organisations consume, from safety equipment to packaging and cleaning products. It has been a very dependable growth share and it pays a growing dividend, too. Read more.

Contact Richard Beddard by email: richard@beddard.net or on Twitter: @RichardBeddard.

Richard Beddard is a freelance contributor and not a direct employee of interactive investor.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation, and is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Disclosure

We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here

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